What are secured loans?
Secured loans, sometimes called homeowner loans, are borrowed against an asset you own, usually your home. When you apply for a secured loan, the lender will ask you to put up an asset as collateral for the loan. This means that if you cannot repay the loan, the lender can sell the asset to collect the loan.
Is a secured loan the best loan for me?
Typically, homeowner loans or secured loans are used for long term borrowing. They can have repayment periods of up to 40 years.
Whether a particular loan is right for you depends on your individual needs and your financial situation, especially whether you will be able to repay the loan by making all repayments as they fall due.
Secured loans are generally used to borrow larger sums of money. This can range from Â£ 35,000 to around Â£ 100,000, although smaller amounts can be borrowed. It could be to fund a large expense like a wedding or home improvements.
Secured loans are useful if you want to pay them back over a long period. The longer term usually means your monthly payments will be much lower than on a standard personal loan. The downside to a long term loan is that you risk paying more interest overall and your home is in jeopardy if you don’t make the payments.
Banks and lenders are keen to offer secured loans and loans to homeowners in part through the reduction of risk to them. This opens up a range of options for borrowers who can compare secured loans and find the best deal for them. You can also use our secured loan comparison tool and our online loan calculator to see how much you can borrow.
How much do secured loans cost?
As with most loans, the cost of the loan depends on the interest rate you are offered and the fees associated with the loan.
Interest: The interest rate offered to you will determine the amount of your monthly repayments. Secured loan rates will also affect the overall amount of interest you pay over the life of the loan. This is why it is important to use a secure loan comparator to compare homeowner loans and find the best deals.
Some homeowners and secured loans have variable interest rates, which means that some months your repayments could cost more than others. If you are unsure whether you can afford higher repayments, or want the certainty of a fixed repayment plan, you should avoid this type of loan.
Costs: Some lenders may charge fees associated with your loan. These could be arrangement fees, brokerage fees or, in the case of secured loans, appraisal fees because the loan is secured by an asset. Knowing the total cost of a loan is important to understand what you have to pay off.
Does the ârepresentativeâ APR mean that I will not get the best loan offered?
Often times when you compare secured loans loan comparison websites or advertise an APR. This is a cost calculation of the cost of the loan, which includes the interest rate and any fees charged.
The ârepresentativeâ APR means that this is the rate offered to at least 51% of the customers of a lender when taking out the personal loan.
Your personal circumstances will determine how much a lender will charge you for a loan. You may not get the ârepresentativeâ interest rate offered when you compare secured loans on loan comparison sites. To get the best deal or have access to a cheap loan, you must have a good credit history with a high credit score. If you’ve defaulted on loans or credit card bills in the past, you might have a hard time getting approved for a secured loan or a homeowner’s loan because your credit score may be lower.
How does a secured loan compare to other loans?
Secured loans give borrowers access to a large sum of money in a fairly short period of time, which for many people is their main benefit.
Borrowers who use a secured loan or a homeowner’s loan will also typically pay a lower interest rate than a personal loan. Lenders will see you as less risky because the loan is secured against your house if you are unable to repay it.
You will have to repay the loan in installments each month. If the interest on the loan is fixed, you will repay a fixed amount each month. If the interest rate is variable, this amount may change.
What are the disadvantages of a secured loan?
The main disadvantage of a homeowner’s loan or a secured loan is the risk you take with your property if you fall behind on your repayments.
With a personal loan, if you are unable to repay the amount you borrowed, it will damage your credit score or, in the worst case, you will have to file for bankruptcy. Borrowers who fail to repay a secured loan may lose their home.
This is why you should only consider taking out a secured or homeowner loan if you are confident that you can maintain your payments.
How does a secured loan compare to remortgaging?
The main alternative to a secured or homeowner loan is to remortgage your property. The risk of your home being repossessed if you default on repayments still applies. However, if you have a lot of equity in your home, remortgage can give you access to many of the best loans at cheaper interest rates.